Mainland may lead gold rush

PUBLISHED : Tuesday, 16 March, 1999, 12:00am
UPDATED : Tuesday, 16 March, 1999, 12:00am

The mainland has the potential to become the biggest gold market in the new millennium if deregulation of its market continues, according to the World Gold Council.

The council's manager for the mainland, Emily Li Yin-ming, yesterday said demand among the mainland's burgeoning middle class would rise if the market was liberalised sufficiently.

Unlike open bullion markets around the world, gold is fixed by a government authority on the mainland.

However, the government has already shown signs of commitment to freeing up the market, adjusting the price four times last year.

'I think the most important thing now is that it's much closer to the rest of the world,' Ms Li said. 'I think reform of the market is definitely on the agenda.' She believed the mainland could learn from the experience in India, which saw its domestic consumption of the precious metal increase dramatically.

The council has been campaigning since the start of the year to persuade the government to fall into line with the rest of the world's bullion markets, as well as targeting middle-class families to increase consumption.

'If China could lift its gold reserves from 3 per cent of the world's total reserves to 10 per cent, we are talking about an increase of more than 1,000 tonnes,' Ms Li said.

The council claims the financial crisis, which has beset Asia since July 1997, has been a positive for the gold industry because it resulted in a rethink on investment decisions.

Following a severe slump in price during the past two years due to central-bank selling, gold is again viewed as a secure investment as well as for its ornamental value, particularly on the mainland, where a traditional belief in its investment worth remains strong.

Sentiment has also been bolstered by the fledgling European Central Bank, which said recently that it would not sell any more of its reserves.

Domestic mainland gold consumption was 192 tonnes last year, making it the world's fourth-biggest consumer. This was down on the previous few years when consumption averaged above 200 tonnes a year.

The mainland is also the fourth-biggest producer of the metal.